Is anyone else worried? Is audit sufficient to meet the wider needs of shareholders, investors and the public?

Is anyone else worried?

The accounting profession have received a great deal of recent negative press amid some pretty big corporate collapses, the latest being Thomas Cook.

Just over a month ago, on the 26th September 2019, the Business, Energy and Industrial Strategy (BEIS) Committee announced the launch of an inquiry into Thomas Cook.

The news headlines leading up to the launch of the inquiry make for sombre reading:

“Thomas Cook’s auditors to be investigated over account sign-off before collapse” (The Scotsman, 1st October 2019).

“Accountancy professional ‘complicit in Thomas Cook failure’” (The Guardian, 22nd October 2019).

Among other things, the Committee is investigating the stewardship of the company, issues around executive remuneration, accounting practices and the role of auditors. All of these issues are key to the accounting profession.

The Chair of the Business, Energy and Industrial Strategy (BEIS) Committee, Rachel Reeves MP, in summing up the situation around the Thomas Cook collapse, indicated the following:

“Amid the frustration of holidaymakers and the misery of thousands of staff losing their jobs, the collapse of Thomas Cook has uncovered what appears to be a sorry tale of corporate greed, raising serious questions about the actions of Thomas Cook’s bosses and their stewardship of the business. This latest corporate failure has shone a light once again on the use of aggressive accounting methods to aid bumper pay-outs to company executives and the apparent inability of auditors and regulators to curb these practices in the wider interests of shareholders, investors, and the public”.

In light of this and other corporate collapses (most recently Carillion plc) in which the accounting profession has received negative press, I pose the question is an audit sufficient to meet the wider needs of shareholders, investors and the public as stated by Rachel Reeves?

In business schools across the UK, we teach accounting students the importance of financial analysis (in particular ratio analysis) as a means of understanding the performance of companies. Additionally, we continue to emphasise the importance of financial analysis as graduates progress through their professional accounting exams. Yet financial analysis seems to play little or no part in the ongoing assessment of the performance of companies – at least not in the published sense of being part of the audit report.

I am interested in your views on this issue. Should we as a profession be worried? Should we seriously consider if the audit is sufficient in meeting the wider needs of shareholders, investors and the public? Are there possibilities for something more to be done to extend the audit in terms of providing shareholders, investors and the public with more relevant information for decision making?

Anonymous